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The Forecasting the Dynamics of Price Fluctuations of Arabica Coffee

Student: Yuliya Kim

Supervisor: Ivan Stankevich

Faculty: Faculty of Economic Sciences

Educational Programme: Economics (Bachelor)

Year of Graduation: 2020

The topic of this final qualification work is " The Forecasting the dynamics pf price fluctuations of Arabica coffee". The main goals of this study are: 1) full-scale study of the coffee market and its mechanisms 2) Identifying the main determinants that influence the coffee pricing 3) Forecasting coffee prices considering the most significant regressors. This work consists of an introduction, 4 main chapters, conclusion, and coverage of the urgent problem of the pandemic and its impact on the coffee market in 2020. The introduction indicates the relevance of the research, which is expressed in the annual growth of demand for coffee by 2% according to the world Coffee Organization. Chapters 1 and 2 cover the theoretical aspects of the coffee market, providing complete information about the factors that affect coffee pricing. The chapters also describe the main economic trends in the development of this market. Chapter 3 features the dynamics and pricing of coffee in the modern world and provides a background for building models and hypotheses. Chapter 4 is an empirical proof of theoretical hypotheses, as well as econometric modeling of coffee price forecasts based on 4 models (LSM, ARIMA, VAR, BVAR). The results show that the influence of trivial determinants on the pricing of coffee loses its force overtime due to the development of various technologies and innovations. Climate regressors may not have as strong an impact on the price of coffee as they did in the second half of the last century. It was also revealed that macroeconomic and financial indicators are fundamental in the coffee pricing of due to their importance in the global political and economic arena. The best predictive model was the BVAR model, which was able to predict prices almost exactly in the period from 2015-2020 and which showed the smallest forecasting errors. The coffee market is the second largest market in the world after oil. So, the modern world throws new challenges to the coffee market in view of progressively growing demand, the development of financial platforms and speculation. However, despite all the threats, there is currently no substitute for coffee that can compete with this product.

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